Get ready for a hike of over 50 paise per litre in diesel prices every month as the government tries to rein in the fiscal deficit to avoid any further downgrade in India’s credit rating. The Cabinet Committee on Political Affairs on Thursday allowed oil marketing firms to raise diesel prices by small amounts at a time, to soften the blow, and raised the cap on subsidised domestic LPG cylinders to nine in a year, up from six.
In the current fiscal year, consequently, each household will now be entitled to five subsidised cylinders between September 2012 to March 31, 2013, up from three.
[The government on Thursday night raised the price of diesel by 45 paise (50 paise in Delhi), cut the petrol price by 25 paise (30 paise in Delhi) and raised the cost of non-subsidised LPG cylinders by `46.50, agencies reported.]
“We have given some liberty to oil marketing companies to raise diesel prices in small doses. They are authorised to make small price corrections from time to time,” said petroleum minister M. Veerappa Moily. He said the oil companies should exercise this discretion in such a way that inflation is not unduly hit, and the entire burden is not passed on to consumers.
Sources said the government has told the oil companies to raise diesel prices by 40-50 paise per litre every month to gradually align them with market prices.
The increase excludes VAT and various state taxes. The under-recovery on diesel is currently pegged at `9.60 per litre.
The oil companies have also been told to sell diesel to bulk users like the railways and shopping malls at market prices, which will make it costlier by `10.81 per litre.The companies will also cut petrol prices by 25 paise per litre in line with international prices.
The government had in 2010 decided to decontrol petrol and diesel prices, but it then put diesel deregulation on hold.
The government maintained the decision to let oil companies hike diesel prices in small doses was not deregulation.
“If we deregulate, the diesel price will have to be raised by `9.60 per litre, which is not the case. Only a small quantum of change has been permitted over a period of time,” said petroleum secretary G.C. Chaturvedi.
He said there was no discussion on the quantum of price increase or the period over which these changes are to be effected, and this has been left to the oil companies.